The c-fms gene encodes a transmembrane protein with tyrosine kinase activity that serves as the receptor for the monocyte- macrophage growth factor, CSF-1. The retroviral homologue of c-fms, v-fms, is the transforming gene of the Susan McDonough strain of the feline sarcoma virus. Using the virus as a model, we have been attempting to identify those alterations in the c-fms gene which create a transforming gene. The carboxyl terminal 40 amino acids of the c-fms gene product are replaced in v-fms by 11 amino acids encoded by the retroviral genome. A number of hybrid genes consisting of the ligand binding and transmembrane domains of the v-fms gene, and the tyrosine kinase domain and C- terminus of either v-fms or c-fms were created and the transforming potential of their gene products were assayed in an NIH 3T3 focus assay. One gene, which contained the v-fms C- terminus had equivalent transforming ability as the normal u-fms. In contrast, those genes containing the c-fms C-terminal sequences displayed a marked reduction in transformation. Mutation of the tyrosine at position 969 (the penultimate amino acid of the c-fms molecule) to a phenylalanine in a non- transforming hybrid gene creates a moderately transforming molecule. Truncation of a non-transforming hybrid gene containing the complete c-fms internal domain at the point were v-fms normally terminates renders the gene product transforming. The results of these experiments strongly suggest that the C- terminal sequences play a role in determining the transforming potential of the fms gene. Specifically, the c-fms C-terminal sequences appear to act in the negative regulation of the gene product since mutation or deletion of these sequences results in the expression of a transforming protein.